China cautious on floating renminbi

A summit in Sydney has discussed the rising importance of China's currency in the global financial market.

Transcript

TICKY FULLERTON, PRESENTER: Today in Sydney the topic for discussion was one of the key global financial market issues: the rising importance of China's currency.

A summit organised by the ANZ Bank and Asia Society heard from Hong Kong's monetary authority chief Norman Chan, who was not about to be rushed into floating the Renminbi.

Here's Phillip Lasker.

PHILLIP LASKER, REPORTER: It may have been a marketing exercise for the ANZ's push into China, but it attracted a fair few heavy hitters, like former Reserve Bank governor Ian Macfarlane and Hong Kong's chief financial regulator. After all, they were here to talk about a profound change.

MIKE SMITH, CEO, ANZ: The government is actively working to raise the standard of living for the average Chinese citizen. It means that China's economic model is changing.

PHILLIP LASKER: According to Mike Smith, China wants to improve its market efficiency, and a big part of that is allowing its currency to float freely. ANZ says the value of renminbi deposits in Hong Kong has grown strongly to around $400 billion or around $60 billion.

MIKE SMITH: My strong sense is that these moves suggest that the Chinese Government is taking active steps to internationalise the renminbi, which is really part of an inevitable road to the renminbi becoming a fully convertible currency.

PHILLIP LASKER: China's Government may be taking active steps, but not quick steps.

NORMAN CHAN, HK MONETARY AUTHORITY: The Chinese approach is basically incremental, (inaudible) and one step at a time.

PHILLIP LASKER: It was an unambiguous rejection of what Norman Chan called the "Western economist shock therapy approach to deregulation".

NORMAN CHAN: They are proposing the kind of big bang approach. Close your eyes, take a deep breath and jump. Open up everything overnight.

PHILLIP LASKER: Former Reserve Bank governor Ian Macfarlane, whose experience goes back to the Australian dollar float, suggested it was big bang or nothing.

IAN MACFARLANE, FMR RESERVE BANK GOVERNOR: We went through a somewhat similar experience in Australia in the '70s and early '80s. And eventually the solution was full convertibility and a full float. And we went through every possible permutation and combination before we got there, but we eventually ended up there.

PHILLIP LASKER: And the conference heard about the growing renminbi bond market. Giant dairy exporter Fonterra, which is buying Chinese farms, talked about the advantages of using the local currency.

NORMAN CHAN: Market dynamics is so complex. One can never totally foresee all the kind of different scenarios and developments. Maybe the best way is do it on a step-by-step basis, move one step at a time. I should emphasise that point.

PHILLIP LASKER: A pool of savings which some say will grow exponentially.